Economic outlook: Follow the leader? October 21, Douglas Porter, CFA. Chief Economist, BMO Financial Group

Transcription

1 Economic outlook: Follow the leader? October 1, 014 Douglas Porter, CFA Chief Economist, BMO Financial Group A presentation of BMO Capital Markets Economic Research

2 General Disclosure BMO Capital Markets is a trade name used by the BMO Investment Banking Group, which includes the wholesale arm of Bank of Montreal and its subsidiaries BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. in the U.K. and BMO Capital Markets Corp. in the U.S. BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. and BMO Capital Markets Corp are affiliates. Bank of Montreal or its subsidiaries ( BMO Financial Group ) has lending arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital Markets. The opinions, estimates and projections contained in this report are those of BMO Capital Markets as of the date of this report and are subject to change without notice. BMO Capital Markets endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Capital Markets makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor. This material is for information purposes only and is not an offer to sell or the solicitation of an offer to buy any security. BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein. Dissemination of Research Our publications are disseminated via and may also be available via our web site Please contact your BMO Financial Group Representative for more information. Conflict Statement A general description of how BMO Financial Group identifies and manages conflicts of interest is contained in our public facing policy for managing conflicts of interest in connection with investment research which is available at ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST BMO Financial Group (NYSE, TSX: BMO) is an integrated financial services provider offering a range of retail banking, wealth management, and investment and corporate banking products. BMO serves Canadian retail clients through BMO Bank of Montreal and BMO Nesbitt Burns. In the United States, personal and commercial banking clients are served by BMO Harris Bank N.A., Member FDIC. Investment and corporate banking services are provided in and the through BMO Capital Markets. BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A, BMO Ireland Plc, and Bank of Montreal (China) Co. Ltd. and the institutional broker dealer businesses of BMO Capital Markets Corp. (Member SIPC), BMO Nesbitt Burns Securities Limited (Member SIPC) and BMO Capital Markets GKST Inc. (Member SIPC) in the U.S., BMO Nesbitt Burns Inc. (Member Canadian Investor Protection Fund) in, Europe and Asia, BMO Capital Markets Limited in Europe, Asia and Australia and BMO Advisors Private Limited in India. Nesbitt Burns is a registered trademark of BMO Nesbitt Burns Corporation Limited, used under license. BMO Capital Markets is a trademark of Bank of Montreal, used under license. "BMO (M-Bar roundel symbol)" is a registered trademark of Bank of Montreal, used under license. Registered trademark of Bank of Montreal in the United States, and elsewhere. TM Trademark Bank of Montreal COPYRIGHT 014 BMO CAPITAL MARKETS CORP. A member of BMO Financial Group

3 Market volatility (as of October 1, 014) Stocks Record Canadian dollar ($/C$) 5 10-year Treasury yield (percent) S&P 500 (lhs) Record TSX (rhs) lines: weekly averages record dots: daily close Oil prices slide Global GDP: Some good, some bad, some ugly 014:Q (y/y % chng) Real GDP China India South Korea UK Australia Mexico Eurozone Japan Brazil -0.9 [Q] World Emerging markets G Another sub-par year

4 North American growth pick-up in 015 (q/q % chng : ar) Real GDP Weather -6 forecast to outpace consumer positives 4 United States 10 Confidence¹ (1985 = 100) 1 Auto sales (mlns : -mnth ma) Job growth (y/y % chng) 8-yr high yr high 18 8-yr high ¹ Source: Conference Board

5 Jobless rates: falling, but... 5 Unemployment rate (percent) [-year low] 5.9% 10.0% 8.7% 6.8% 5.9% 4.4% 4 forecast participation rate: Lowest since 1978 Greece 6.4 Spain 4.4 Portugal 14.0 Italy 1. Ireland 11.4 France Australia 6.1 UK Germany 4.9 Japan.5 Will Canadian housing calm, correct, crash? 6 014: Why isn t immune to a -style housing crash Maclean s

6 Will Canadian housing calm, correct, crash? 7 01: Inside the great real estate crash of 01 01: s housing crash begins Maclean s Canadian Business 011: s housing bubble deemed close to bursting CBC News 010: s housing bubble: An accident waiting to happen 009: Why s housing bubble will burst CCPA The Tyee 008: s housing bubble could soon burst investment firm Canadian house prices: Regional divide (y/y % chng : as of September 014) Existing home prices¹ Calgary Toronto Vancouver 5. Victoria 1. Ottawa 0.1 Montreal unch Saskatoon -0. Regina Average home price (y-t-d avg) $460,000 $564,000 $407,000 $81,000 $498,000 $65,000 $8,000 $40,000 $15,000 ¹ HPI composite benchmark Prices up 5.% in September

7 The other divide... still 9 ($000s : local currency : nsa) Average home price $409,000 60% ¹ $56, ¹ Single-family homes Canadian dollar: Closer to the mark 10 Loonie dips below 90 Bank of changes tune Commodities softening $ rebounds...less demand for safety

8 C$ prognosis: Parity past 11 (as of October 1, 014) 1, C$ parity C$¹ (rhs) BoC commodity price index² (lhs) forecast 60 ¹ ( ) ² (197 = 100) actuals: weekly averages forecast: monthly averages Ottawa s finances in good shape Federal budget balance 1 C$ blns % of nominal GDP Prior trough forecast¹ Budget balanced by 015 ¹ Source: 014 Federal Budget

9 Bank of : A different tune 1 Canadian dollar ( : as of October 1, 014) parity Poloz takes over at BoC (June 1, 01) Bank of Governor Stephen Poloz Inflation off the lows 14 Consumer price index (y/y % chng) 4.5 United States 4.5 Total CPI (latest month).0 Total 1.7%.0 Total.0%.1% India Brazil Core 1.7% Core Japan China UK 1. forecast Eurozone Poloz: A little more comfortable about inflation

10 Interest rates: 015 hikes come into view (% : as of October 1, 014) 15 6 Overnight rate forecast 6 10-year bonds % 1.96%.0%.0% [Year-end 15].95% 1.00% 1 Record lows 0%-0.5% at zero for 7 years? % [Year-end 14] Yields slide despite QE tapering Global diversity 16 Equity markets (% chng) year-to-date (as of October 1, 014) Japan Nasdaq S&P 500 DJIA Germany Australia UK TSX India Russia China Brazil India TSX Nasdaq S&P 500 China Brazil DJIA Australia UK Germany Japan Russia Tables turn for TSX

11 Outlook in a nutshell 17 Global growth to improve modestly despite risks recovery to strengthen Less fiscal drag Housing recovery still key pulled along Exports finally benefit Housing slows, but no crash Interest rates: Modest upward drift Exchange rates: Improving economy drives dollar higher Stocks: Bull market to continue, but pace to slow